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Identifying Complex Core-Periphery Structures in the Interbank Market

Author

Listed:
  • José Carreño
  • Rodrigo Cifuentes
Abstract
This paper proposes a framework to identify the structure of a financial network and its evolution of over time, and presents an application to an interbank market with complete actual data. The framework is based on a methodology popular in the social network literature, namely the Stochastic Blockmodelling (SBM), which, we argue, is more general, transparent and richer in results than other proposed methodologies. In particular, we can identify the presence of multiple cores and peripheries, as well as different ways of interaction between them. We find that such a varied coreperiphery structure exists in almost all periods for different instruments analyzed. Also, in the case of term deposits, which account for two-thirds of interbank exposures, we find that far from being static, the structure underwent a transition in the period 2009-2015, with the core increasing its size. We also show that facts revealed by our approach cannot be observed in metrics commonly used to describe networks. Finally, we describe how the elements identified by our method can be used to single out sources and channels of transmission of systemic risk in a network of banks.

Suggested Citation

  • José Carreño & Rodrigo Cifuentes, 2017. "Identifying Complex Core-Periphery Structures in the Interbank Market," Working Papers Central Bank of Chile 813, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:813
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_813.pdf
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    References listed on IDEAS

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    Cited by:

    1. Margaretic, Paula & Cifuentes, Rodrigo & Carreño, José Gabriel, 2021. "Banks’ interconnections and peer effects: Evidence from Chile," Research in International Business and Finance, Elsevier, vol. 58(C).
    2. Brassil, Anthony & Nodari, Gabriela, 2021. "A Density-Based estimator of core/periphery network structures," Journal of Banking & Finance, Elsevier, vol. 125(C).
    3. Sadamori Kojaku & Giulio Cimini & Guido Caldarelli & Naoki Masuda, 2018. "Structural changes in the interbank market across the financial crisis from multiple core-periphery analysis," Papers 1802.05139, arXiv.org.

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